Does it Make Sense to File our Taxes Married Filing Separately?

This is a guest post by 20SomethingFinance reader Natalie H. Natalie is a tax preparer who loves tax strategy. She has previously posted an overview of 7 IRS audit red flags to watch out for.

Married Filing Separately? Does it Make Sense for my Spouse and I?

Should we be filing MFS (Married Filing Separately) or MFJ (Married Filing Jointly)? This is a tricky question to answer.

There are many reasons that people wish to file MFS. However, tax laws don’t make it easy on you.

Right from the get go, filing as married filing separately is particularly troublesome in community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin) where income must be equally split between spouses.

There are also numerous penalties associated with choosing married filing separately.

The overall tax rate will be higher

You cannot take several credits including: Earned Income Credit, Adoption Credit, Credit for Child and Dependent care in most cases, or any education credits or deductions.

So with all these penalties, why would someone choose to file as MFS? Here are some reasons my clients have given:

I no longer live with my spouse and I don’t want to file taxes together.

My spouse owes back taxes, child support, or has other liens that would prevent us from receiving a refund.

My spouse wants to itemize and I don’t.

Let’s analyze each separately:

#1: “I no longer live with my spouse and I don’t want to file taxes together.”

In this case I advise my clients with children that they may be able to use something called the “abandoned spouse rule” to claim head of household. To qualify for head of household while married, you must have a dependent child living in the household and the spouse must not have lived at that residence any time during the last six months of the year. Please read publication 501 for additional criteria and information about this use of HOH.

For those that don’t have children and live in a community property state, I don’t advise filing separately. This is because income must be split equally. How do both people claim half a W-2? Well, the IRS tells us to do it, but doesn’t say how. It can’t be filed electronically, so it must be a paper form, which encourages errors. The IRS will likely not compute your tax correctly leading to a personal review. You should probably send a letter of explanation. Is it really worth the extra attention?

If you don’t have children and don’t live in a community property state, you are free to file separately, but you will almost certainly be taxed more. Depending on your personal situation, it may be worth the extra tax to keep things separate.

#2: “My spouse owes back taxes, child support, or has other liens that would prevent us from receiving a refund.”

In most states, this may be a reason to file separately, but beware of all the extra rules for MFS, listed above. Consider that by filing jointly you will almost certainly get a larger refund, and although this will be applied to the debt, you will also be able to eliminate the debt much more quickly.

In community property states, you should file together, but also file form 8379, the injured spouse form. Since only half of the refund is allocated to each individual, you will normally get half of the expected refund. This form may also work for non community property states, but is less likely to be accepted or may be weighted by income.

#3: “My spouse wants to itemize and I don’t.”

One of the penalties of MFS is that either both itemize or neither does. This must be true even if the itemized deductions for one person equal zero. However, there may be some circumstances where this is still an advantage. There are some deductions which are income based, such as medical expenses and non reimbursed employee expenses. If only one spouse incurred these deductions and you would otherwise not be able to claim these deductions, it makes sense to calculate your return both ways and choose the most advantageous. Again, if you live in a community property state, dividing income equally can be problematic.

To summarize, the IRS heavily penalizes those who file separately, but there are still some rare cases where you can benefit monetarily by filing separately. Most couples would do better to settle their differences for one day and file taxes together.

Additional Notes from Natalie: I work as a tax preparer in a community property state. In four years of practice, I have never had a client who benefited from choosing Married Filing Single.

This article is meant to illustrate my personal experience. It is not tax advice. If you have any questions, please consult the IRS publications and your personal tax advisor.

Married Filing Separately Discussion:

Have you file married filing separately? For what reasons? What were the tax savings?

9 Comments »

During my divorce, my ex-husband and I had been separated at the end of the tax year, but the divorce was not yet final. I made the decision to file MFS for the following reasons: I would not be responsible for any of his tax liability based on his income, and I would not have to keep correspondence with him to ensure he pays his liability (plus extra correspondence coordinating schedules to meet up for signatures, etc).

No, there wasn’t any tax savings, but it was more peace-of-mind savings than anything. I went through a difficult divorce. Not having to correspond with him over tax issues was worth the extra taxes I had to pay.

That’s a great point. It will work to your advantage if you expect a large portion of your debt to be forgiven. If you expect to pay your loan off eventually you are paying both more tax and more interest in the long run.

My husband and I are separated and divorce will be final next month.
He did not work last year and has no income.
I supported him.
We have one child together and share him 50/50.
He wants 50% of my refund.
Is he entitled to 50% of my refund or 50% of the child credit for our one dependent?

My husband and I had each paid more than the $2500 in interest on student loans last year. We do not own a home together so we were wondering if it would make more sense for us to file separately so we could each get the $2500 deduction.

I am in need of help. It is tax time and usually my husband and I get right to work getting them done so we can get our refunds. However, after what happened last year, I don’t know what to do. He owes Federal Student Loans and last year, they took ALL of our tax money (and I mean $7,000 worth). We didn’t find this out until we were waiting on our money to arrive and it never did. They yanked it from us WITHOUT telling us. With this said, I felt it was unfair of them to take all of the money since we file jointly and I do NOT have any student/federal loans, myself. What I want to know is HOW can we file jointly and still get back some of that money? I read above that filing separately isn’t necessarily a good thing and we have not once filed separately since we got married 16 years ago so I wouldn’t even know how to do that. Please help because I feel that I was entitled to at least keep some of the money from last year and if we can avoid getting it all taken from us this year, that’d be great. We were paying off our past due bills with that money and using the rest for our three kids and I would like to be able to at least get some of them bills paid off again for a while. Thanks for your time and for your help.

What happens if I did not fill the section on community property correctly? My spouse and I are married filing separately, thinking it would be less stressful. And since this is my first time filing MFS and by myself (I had an accountant do it for the last 2 years), I made a mistake of leaving his section on community property blank. I already filed my return. Should I amend?